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Estate and Gift Tax Law Changes Included in Obama’s 2015 Budget Proposal

President Obama recently released his 2015 budget proposal, which includes significant changes to estate and gift tax laws. After the American Taxpayer Relief Act of 2012 (“ATRA”) was enacted, the Federal estate and gift tax rules were considered “permanent” for 2013 and beyond. For now, the proposed changes are simply part of the President’s wish-list, but worthy of review.

Before ATRA, the Federal estate tax exclusion exemption was scheduled to decrease from $5,120,000 in 2012 to $1,000,000 in 2013, with the maximum tax rate increasing to 55%. ATRA changed these amounts and established the Federal exclusion exemption at $5,000,000 for individuals passing away after December 31, 2012, to be adjusted annually for inflation, with the tax rate capped at 40%. In 2014, with the inflation adjustment, the exclusion exemption is $5,340,000. ATRA also continued portability of unused estate tax exclusion exemptions between spouses.

Notwithstanding the proponed “permanency” of the ATRA provisions on estate and gift taxes, President Obama’s 2015 budget intends to modify various provisions of ATRA. Most notably it proposes to take the estate tax exclusion back to 2009 levels. Thus, effective for individual passing away after December 31, 2017, the federal estate tax exclusion exemption would be reduced to $3,500,000 with no indexing for inflation, and a maximum tax rate of 45%. President Obama’s budget proposal also changes the concept of portability, only allowing the surviving spouse to use the remaining gift tax exclusion that the deceased spouse could have used for lifetime gifts during the year of the deceased spouse’s death.

President Obama also proffers changes to the gift tax exclusions for annual gifts. Under current law, an individual may exclude an annual gift of up to $14,000, indexed for inflation, to any person as long as the recipient has a present interest in the gift. The proposed change removes the present interest requirement; however, it creates a new transfer category for gifts and limits a donor to an aggregate of $50,000 annually for most gifts that are not outright and free from trust to the recipient. Consequently, gifts that fall into this new category that are in excess of $50,000 would be taxable, even if the total gift amount from a donor to a donee is $14,000 or less.

As Greek philosopher Heraclitus stated, “change is the only constant.” So it appears the only thing “permanent” when it comes to estate and gift taxes is Congress’ ability to change the law. Therefore, individuals must continue to monitor changes in estate and gift tax laws and regularly consult with their estate planning advisors to review the impact on existing estate plans.

For additional information, please contact attorney Shannon Frank at sfrank@KDDK.com or (812) 423-3183, or contact any member of the KDDK Estate Planning and Probate Administration Practice Team.

About the Author

Shannon S. Frank

Shannon S. Frank, a Partner at Kahn, Dees, Donovan & Kahn, LLP (KDDK), in Evansville, Indiana, has more than 20 years’ experience in the practice of business law, construction law, estate planning and probate administration, health care law, and real estate law. Shannon takes prides in giving exceptional service to her clients, recognizing that relationships with clients play a significant and essential role in providing tailored and comprehensive legal advice.